R&D Tax Incentive Reform: Draft Legislation Released

July 2, 2018 Melanie Reen

The Treasurer Scott Morrison and the Minister for Jobs and Innovation Michaelia Cash have just released draft legislation to implement the changes to the R&D Tax Incentive announced as part of the 2018–19 Federal Budget. In summary, the proposal is unchanged from Budget night, and the key features of this exposure draft are:

• Setting the tax offset for non-refundable claimants (> $20 m turnover) to their corporate tax rates plus one or more marginal intensity premiums (designed to target the Incentive to R&D entities with high levels of R&D intensity, expressed as a proportion of their total expenditure). The intensity calculations appear to penalise Australian based multi-nationals, compared to foreign multi-nationals with Australian subsidiaries, as the denominator in the intensity calculation includes total expenditure for the Australian taxpayer;
• Increasing the R&D expenditure cap from $100 million to $150 million;
• Setting the tax offset for refundable claimants (< $20 m turnover) to their corporate tax rates plus a 13.5% premium;
• Capping the refundability of the R&D tax offset at $4 million per annum (with an exception for clinical trials);
• Amending the feedstock and recoupment clawbacks to be closer aligned to the company tax rates; and
• Legislating the integrity measures proposed, including the requirement for the Commissioner to annually publish a list of all claimants and the size of their R&D claims.

Stakeholders are invited to provide feedback on the proposed legislation before 26 July 2018 (24 days away). We will be doing a detailed analysis of the exposure draft over the next few days, and will fill you in on our thoughts very soon.

If you have any questions about the consultation process, or if you would like to be involved in this process, please call Kris Gale on kris.gale@mjassociates.com.au or 02 9810 7211.